[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.532-1]

[Page 242]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.532-1  Corporations subject to accumulated earnings tax.

    (a) General rule. (1) The tax imposed by section 531 applies to any 
domestic or foreign corporation (not specifically excepted under section 
532(b) and paragraph (b) of this section) formed or availed of to avoid 
or prevent the imposition of the individual income tax on its 
shareholders, or on the shareholders of any other corporation, by 
permitting earnings and profits to accumulate instead of dividing or 
distributing them. See section 533 and Sec. 1.533-1, relating to 
evidence of purpose to avoid income tax with respect to shareholders.
    (2) The tax imposed by section 531 may apply if the avoidance is 
accomplished through the formation or use of one corporation or a chain 
of corporations. For example, if the capital stock of the M Corporation 
is held by the N Corporation, the earnings and profits of the M 
Corporation would not be returned as income subject to the individual 
income tax until such earnings and profits of the M Corporation were 
distributed to the N Corporation and distributed in turn by the N 
Corporation to its shareholders. If either the M Corporation or the N 
Corporation was formed or is availed of for the purpose of avoiding or 
preventing the imposition of the individual income tax upon the 
shareholders of the N Corporation, the accumulated taxable income of the 
corporation so formed or availed of (M or N, as the case may be) is 
subject to the tax imposed by section 531.
    (b) Exceptions. The accumulated earnings tax imposed by section 531 
does not apply to a personal holding company (as defined in section 
542), to a foreign personal holding company (as defined in section 552), 
or to a corporation exempt from tax under subchapter F, chapter 1 of the 
Code.
    (c) Foreign corporations. Section 531 is applicable to any foreign 
corporation, whether resident or nonresident, with respect to any income 
derived from sources, within the United States, if any of its 
shareholders are subject to income tax on the distributions of the 
corporation by reason of being (1) citizens or residents of the United 
States, or (2) nonresident alien individuals to whom section 871 is 
applicable, or (3) foreign corporations if a beneficial interest therein 
is owned directly or indirectly by any shareholder specified in 
subparagraph (1) or (2) of this paragraph.